Research Publication Date: 22 March 2010 ID Number: G00175233 2010 FEI Technology Study: CPM and BI Show Improvement From 2009 John E. Van Decker Many organizations recognize that current financial management processes are a constraint, and are making investments in process and technology for improvement. While there are improvements from the 2009 Gartner Financial Executives International (FEI) technology study, enterprises are increasingly adopting business intelligence (BI) technologies to boost the analytical and decision-making processes that underpin overall success. Key Findings Corporate performance management (CPM) is both a top priority and a constraint for the finance organization. Top constraints identified in the 2010 Gartner FEI study are components of what the CPM suite targets, including measuring product and customer profitability, and monitoring of business performance. CPM and BI are top investment priorities. According to the study, 56.4% of enterprises planned to upgrade their analytical and decision support capabilities in the current year. The study shows that the consistency of management and financial information has improved slightly over 2009, as has the perceived relative maturity of BI and CPM platforms. Recommendations An organization should establish a BI and CPM competency center that brings together business and IT personnel to determine what the reporting issues are and how to align technologies to address them. IT organizations must understand how CPM can benefit the organization and work in close collaboration to enable CPM platforms that are consistent with the IT portfolio. To align management reporting, organizations must define and deploy an enterprisewide metrics framework. Organizations need to have a consistent set of performance metrics that are clearly defined, aligned to corporate strategy and recognizable by all stakeholders. Use care when evaluating this research, because it represents responses from the sample in the study and may not reflect how your organization should plan for CPM and BI implementation. Reproduction and distribution of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Although Gartner's research may discuss legal issues related to the information technology business, Gartner does not provide legal advice or services and its research should not be construed or used as such. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The opinions expressed herein are subject to change without notice.
ANALYSIS The 2010 Gartner FEI technology study provided 482 responses to approximately 50 questions that covered senior finance managers' views of technology. This study was open from late October 2009 through January 2010. More than 74% of the respondents were senior financial executives. We believe this study provides a consistent picture of the CFO view of technology, and provides an important opportunity for firms to benchmark their internal initiatives and perspectives against those of other finance organizations. From this study, BI and CPM were proved to be major technology initiatives of the CFO; 54.4% of organizations plan to upgrade their decision and analytical support processes in 2010. Many of these organizations recognize that current financial management processes are a constraint, and are making investments in process and technology for improvement. At the same time, enterprises are increasingly adopting BI technologies to boost the analytical and decision-making processes that underpin overall success. Within the category of BI, CPM suites have provided major improvements for enterprise financial management. Gartner first defined the term "corporate performance management" in 2001 (see Note 1), although some of the individual components of a CPM suite existed for many years as standalone applications. CPM includes the processes used to manage corporate performance, such as strategy formulation, budgeting and forecasting; the methodologies that support these processes, including the balanced scorecard, or value-based management; and the metrics used to measure performance against strategic and operational performance goals. However, CPM also comprises a series of analytic applications, such as budgeting, planning and forecasting (BP&F), financial consolidation, and financial reporting solutions, which provide the functionality to support these processes, methodologies and metrics that are targeted at the CFO, finance team, senior executives and corporate-level decision makers. The 2010 Gartner FEI study of finance executives provides insight into CPM capabilities and investment patterns for enterprises. Following are major observations from the study. Profitability Management Is the Top Constraint in the Finance Organization The study found that CPM is a top priority of, as well as a constraint for, the finance organization. The study showed that many of the top constraints are components of what the CPM suite targets, including profitability modeling and optimization (PM&O) these applications can be used to address the measuring product and customer profitability constraints and monitoring of business performance. Understanding the drivers of profitability and positioning the company for profitable growth are top priorities. Most organizations are challenged to understand profitability at anything other than an aggregate corporate level. The study revealed that 19% of financial managers viewed measuring product and customer profitability as the top constraint (see Figure 1). This is consistent with the 2009 study, where it was ranked the same. (Note: The methodology used in this calculation is different from that used in 2009, and will be consistent in future survey years.) There is a technology gap, and organizations are not yet effectively using technology to help them manage profitability. This is consistent with prior Gartner research that shows that being able to understand the profitability of customers and products is a primary requirement in the office of finance. PM&O applications that are on the market can address many of these requirements, by providing a sophisticated and powerful environment that supports a deep understanding of the drivers of profitability, and many of these are available in CPM suites. PM&O applications are one of the least-understood and least-implemented areas of CPM; yet, Publication Date: 22 March 2010/ID Number: G00175233 Page 2 of 8
they offer an increasing level of sophistication and business benefit, and should be considered a worthwhile short-term investment. Figure 1. Top Technology Constraints of the Finance Organization Source: Gartner (March 2010) CPM Applications Are the Top Investment Priority Many of the top constraints point to the need for better BI and CPM platforms in organizations. Because many BI and CPM projects require services to bring in these applications to configure the product, after first understanding what is required and how to address CPM business processes, this is in alignment with how we see many firms budgeting for most projects. The top constraints are all CPM capabilities, so CPM is the top area in BI for investment. Coinciding with the CPM-related constraints shown in Figure 1, many firms will be making investments in these platforms, with CPM technologies getting a boost in support. CPM provides functionality that targets many of the areas with planned upgrades in 2010 (see Figure 2), including management dashboards (53.6% plan an upgrade) consolidation and reporting (38.7%), Publication Date: 22 March 2010/ID Number: G00175233 Page 3 of 8
performance measurement/scorecard (40.1%), planning/budgeting/forecasting (49.1%), customer and product profitability (38.7%) and financial consolidation and reporting (38.3%). Figure 2. Planned Upgrades of CPM Functionality in 2010 Source: Gartner (March 2010) Action Item: CPM is the top area of opportunity for most organizations. Most finance organizations see the benefits of improvements in these areas, and most seek to upgrade their platforms and solutions during the next 12 months. IT must understand how CPM can benefit the organization and work in close collaboration with finance to enable CPM platforms that are consistent with the IT portfolio. In the absence of such collaboration, many finance organizations pursue their own solutions, including those built on software-as-a-service (SaaS) platforms without the coordination of IT. Views of Existing BI and CPM Investments Show Improvement Most organizations (56.4%) have an average perception of their current BI and CPM platforms (see Figure 3), up slightly from 2009 (55%). While we did have almost double the responses in 2010 from 2009, there was an increase in those who felt that the maturity had improved from 2009 (21.8% from 14.4%, 2010 vs. 2009), there were fewer who felt that the maturity was poor (18.8% from 24.9%) and fewer felt that it was failing (1.7% from 4.8%). This finding is not surprising, given that many senior financial executives view the lack of management information, particularly in financial management and CPM areas, as a constraint. CPM applications offer potentially significant benefits. However, business users' and IT organizations' lack of knowledge and understanding means that most CPM applications will fail to deliver significant improvements in business performance management. There have been many improvements in CPM suites during the past few years. Despite the dramatic vendor changes and the increased capabilities of available solutions, Gartner still has not seen a significant increase in the shift to more-advanced capabilities, such as the adoption of strategy management and profitability modeling. This is because most business users are shifting from legacy, manual and spreadsheet-based systems; they simply don't know what these advanced applications can do or how they should be Publication Date: 22 March 2010/ID Number: G00175233 Page 4 of 8
deployed. Consequently, in most implementations of CPM suites, organizations are using a sophisticated solution to automate outdated management processes, and, therefore, fail to achieve potential business benefits. Figure 3. Relative Maturity of BI and CPM Platforms Source: Gartner (March 2010) Action Item: Evaluate where you are with the major components of CPM, including BP&F, financial and management reporting, scorecarding and strategy management, and profitability management from both a business process and technology perspective. CPM projects are often viewed as strategic applications, because they provide a link between strategy and tactical execution. This capability is important, but its significance has increased during the current economy, as it may be a means for an enterprise to manage its way through difficult times. CPM projects also can help clients address transparency, reporting and regulatory issues. Leveraging CPM in an economic downturn will help organizations make better cost-reduction decisions that won't impair their enterprises when there's a return to growth. Consistency of Management and Financial Information Has Improved While most organizations (72%) view management and financial information to be consistent (of which 20% see that it is highly consistent and 52% view it as quite consistent with minor differences), these findings still represent a major opportunity for improvement, because 27% believe there are significant issues that require manual reconciliation and time to prepare these reports (see Figure 4). This was an improvement over the 2009 survey, where 62% felt it was consistent and 38% believed there was room for improvement. With this survey result, as we look at larger companies, there is less consistency due to the numerous data sources that need to be aggregated to produce meaningful reports. Many organizations approach their BI and CPM initiatives tactically, by responding to immediate reporting or dashboard requests from managers. This approach may be required in some cases, but leading organizations are evolving their focus to support these initiatives strategically for diverse users and applications; instead, a more Publication Date: 22 March 2010/ID Number: G00175233 Page 5 of 8
coordinated approach is needed. To implement CPM effectively, it must be architected in a way that is consistent with the enterprise's chosen/targeted BI platforms. Figure 4. Consistency of Management and Financial Reporting Delivered by the Finance Team With Operational Reporting Source: Gartner (March 2010) Still, the issue for many organizations is that they do not have alignment on what should be measured. Mostly, this does not represent a technology issue; rather, the main issue is coming to a consensus in terms of what should be measured, then determining how it fits into the enterprise business model. Organizations need to have a consistent set of performance metrics that are clearly defined, aligned to corporate strategy and recognizable by all stakeholders. Undertaking a project to provide this alignment requires the identification of a comprehensive set of performance metrics across all areas of the business, as well as the creation of a workable plan to calculate these metrics and to provide transparency to all stakeholders. Action Item: Organizations should establish a BI and CPM competency center that brings together business and IT personnel to determine what the reporting issues are and how to align technologies to address them. They should establish BI and CPM platform standards. This project includes picking the right vendors and tools to meet various aspects of the BI and CPM initiatives, as well as determining how to effectively integrate these technologies into the CPM business process. To get management reporting in alignment, organizations must define and deploy an enterprisewide metrics framework. This project is the single most visible project of the BI and CPM initiatives. Bottom Line CPM is a journey for all organizations. Successful organizations whose projects have yielded the expected business value (and are deemed ready to take on more business requirements) generally take incremental steps to value, usually starting with a smaller project, such as an extremely well-focused BP&F initiative, financial reporting and consolidation, or a balanced Publication Date: 22 March 2010/ID Number: G00175233 Page 6 of 8
scorecard. Many organizations have employed CPM suites, as opposed to separate point solutions, to meet these challenges, and they're considering how they can extend their CPM projects to capture more value. Sometimes, this is easier to plan than to execute, because many of the next steps require more carefully orchestrated planning and implementation, often with the assistance of a business strategy service provider. Still, organizations should consider opportunities to deploy more-integrated components of the CPM suite, because there's a transformational opportunity to improve CPM initiatives. While the 2010 Gartner FEI study shows there was improvement from 2009 in the perception of the maturity of BI and CPM investments, there is also room for further improvement. Most current CPM projects typically focus on BP&F, or on financial consolidation and reporting. However, CPM applications are also key in linking strategy to operational execution; they also leverage BI investments to bring consistency to financial and operational reporting, which can improve corporate governance and can help address compliance issues. Increasingly, CPM applications can be used to identify the drivers of profitability to help organizations pursue profitable revenue growth. However, there is a lack of knowledge among most finance and business users about the potential of these applications, and few companies appear to be leveraging them to their fullest extent. Many organizations that have implemented CPM solutions have not implemented more of the advanced functionality, including strategy management and profitability management. In fact, these are top constraints to success for the finance organization. By leveraging PM&O, the finance organization can address its top constraint. RECOMMENDED READING "Business Intelligence and Performance Management Initiative Overview" "Magic Quadrant for Corporate Performance Management Suites" "Q&A: CPM Reduces Operating Expenses in a Troubled Economy" "Pitney Bowes Leverages a SaaS CPM Solution to Improve Its Reporting" "How to Use Metrics in Corporate Performance Management" "2009 FEI Technology Study: CPM and BI Pose Challenges and Opportunities" Note 1 CPM CPM includes the processes used to manage corporate performance, such as strategy formulation, budgeting and forecasting; the methodologies that support these processes, including the balanced scorecard, or value-based management; and the metrics used to measure performance against strategic and operational performance goals. However, CPM also comprises a series of analytic applications, such as BP&F, financial consolidation and financial reporting solutions, which provide the functionality to support these processes, methodologies and metrics that are targeted at the CFO, finance team, senior executives and corporate-level decision makers (see "Magic Quadrant for Corporate Performance Management Suites"). CPM projects typically focus on BP&F, or on financial consolidation and reporting. However, CPM applications are also key in linking strategy to operational execution, and they also leverage BI investments to bring consistency to financial and operational reporting, which can improve corporate governance and help address compliance issues. Increasingly, CPM applications can be used to identify the drivers of profitability to help organizations pursue profitable revenue growth. However, there is a lack of knowledge among most finance and business users about the Publication Date: 22 March 2010/ID Number: G00175233 Page 7 of 8
potential of these applications, and few companies appear to be leveraging them to their fullest extent. CPM is a journey for all organizations. Successful organizations whose projects have yielded the expected business value (and are deemed ready to take on more business requirements) generally take incremental steps to value, usually starting with a smaller project, such as an extremely well-focused BP&F initiative, financial reporting and consolidation, or a balanced scorecard. Many organizations have employed CPM suites, as opposed to separate point solutions, to meet these challenges, and they're considering how they can extend their CPM projects to capture more value. Sometimes, this is easier to plan than to execute, because many of the next steps require more carefully orchestrated planning and implementation, often with the assistance of a business strategy service provider. Still, organizations should consider opportunities to deploy more-integrated components of the CPM suite, because there's a transformational opportunity to improve CPM initiatives. This research is part of a set of related research pieces. See "2010 Gartner FEI Technology Study Research Collection" for an overview. REGIONAL HEADQUARTERS Corporate Headquarters 56 Top Gallant Road Stamford, CT 06902-7700 U.S.A. +1 203 964 0096 European Headquarters Tamesis The Glanty Egham Surrey, TW20 9AW UNITED KINGDOM +44 1784 431611 Asia/Pacific Headquarters Gartner Australasia Pty. Ltd. Level 9, 141 Walker Street North Sydney New South Wales 2060 AUSTRALIA +61 2 9459 4600 Japan Headquarters Gartner Japan Ltd. Aobadai Hills, 6F 7-7, Aobadai, 4-chome Meguro-ku, Tokyo 153-0042 JAPAN +81 3 3481 3670 Latin America Headquarters Gartner do Brazil Av. das Nações Unidas, 12551 9 andar World Trade Center 04578-903 São Paulo SP BRAZIL +55 11 3443 1509 Publication Date: 22 March 2010/ID Number: G00175233 Page 8 of 8